Allianz forecasts the electric horizon in the automotive market

As the automotive market edges closer to a more sustainable and electric future, it navigates through a myriad of challenges that could potentially slow its journey. The recent insights from Allianz shed light on these impediments, highlighting a complex landscape shaped by fluctuating demand, geopolitical tensions, and a seismic shift in automotive technology.
Bar chart titled "Figure 2: New auto registrations by region (mn units)" depicting industry developments from 2000 to 2024. Bars illustrate regions (Asia, North America, Europe, South America, Other), while a red line on the secondary y-axis shows the growth rate. Sources: national associations, OICA, Wards, ACEA, Allianz Research.
Source: Driving the next phase of e-Mobility in Europe | Allianz

Following a buoyant 2023, where the automotive sector witnessed a robust rebound in new auto registrations, buoyed by the easing of COVID-19 induced supply chain disruptions and a surge in pent-up demand, the market is expected to witness a slowdown. Growth in new auto registrations is predicted to decelerate to +1.9% in the current year. This normalisation comes in the wake of subdued consumer spending, particularly in China and Europe, alongside tepid global economic growth. Furthermore, geopolitical tensions loom large, with the prospect of higher tariffs potentially impacting overall demand. However, electric vehicles (EVs) remain a bright spot amidst this slowdown, with sales expected to soar by +32.8% year-over-year in 2024.

The automotive industry finds itself in an intensifying competitive arena, further exacerbated by an uncertain environment. Automakers face diminishing pricing power and contracting margins, prompting a strategic pivot towards diversifying investments across traditional internal combustion engine vehicles, hybrids, and fully electric models. This diversification necessitates increased spending on research and development (R&D) and capital expenditure (CapEx), with significant implications for the industry’s financial health.

At the heart of the industry’s evolution is a monumental paradigm shift from internal combustion engines to a focus on battery and software capabilities. This transition, underpinned by global efforts to achieve carbon neutrality, marks the most significant transformation in the automotive sector since its inception. China emerges as a disruptive force in this new era, leveraging its decade-long investment in battery and software technologies to assert dominance over the global auto landscape.

The journey towards electrification is further complicated by geopolitical tensions, particularly between the West and China. The West’s growing wariness over its dependence on Chinese supplies, coupled with concerns over the burgeoning popularity of Chinese EVs, has led to increased trade barriers and heightened scrutiny. Initiatives like Biden’s Inflation Reaction Act (IRA) and the EU’s anti-subsidy investigations into Chinese carmakers reflect a protective stance aimed at safeguarding local industries. These measures underscore the delicate balance policymakers must strike between accelerating the green transition and protecting domestic employment and industry.

The uncertain regulatory landscape adds another layer of complexity to the industry’s trajectory towards electrification. Exemptions and delays in the implementation of bans on the sale of new fossil-fuelled vehicles, alongside the potential implications of political shifts in the US, underscore the intricate interplay between regulatory decisions, market dynamics, and geopolitical factors.

The road to electrification, while promising a greener and more sustainable future, is fraught with challenges. From market normalisation and competitive pressures to geopolitical tensions and regulatory uncertainties, the automotive industry must navigate a complex and uncertain path. As highlighted by Allianz, this journey requires a balanced approach, leveraging collaboration, innovation, and strategic foresight to overcome the speed bumps on the road to a fully electric automotive landscape.

Source: Global auto outlook: Steering through turbulence | Allianz

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